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Some thoughts for retail and leisure operators

27 June 2014

Retail and leisure tenants have an inherent degree of protection when taking a new unit in a large shopping centre because of  the very nature of the development and the development team involved. With the general pick up in the economy, smaller scale retail and leisure schemes are beginning to spring up in off large shopping centre locations. 

The operator needs to be alert to and consider commercial points that it may not necessarily focus on when taking space in a large shopping centre scheme. There are a number of aspects which will be unique to each development and therefore each scheme needs to be assessed for viability right from the outset. 

There follow below a few suggestions ( a comprehensive list of points is outside the scope of this note ) which in our experience appear not to attract sufficient attention and which an operator ought to consider before entering into the conditional leasing agreement or preferably at the heads of terms stage as trying to retro fit new commercial terms during the legal process can often be difficult.

  • What is the proposed tenant mix at the development and who are to be the other occupiers?
  • Are these of a type which will create sufficient footfall to benefit the operator ? 
  • If all adjoining occupiers have not yet been signed up, should the operator have some say in relation to their identity and what control is reasonable bearing in mind competition rules ?
  • Will the other occupiers be open for trade at the same time as the operator? Timing and launch of the whole scheme is important but the interests of the occupier and the developer are not necessarily aligned since a developer of such a scheme may be under financial pressure to complete the leases as quickly as possible and on an ad hoc basis.
  • What happens if the other anticipated occupiers do not materialise or if there is a problem which precludes one or more of them from taking occupation, how can the operator influence or incentivise the developer to ensure that the other occupiers do actually fit out and open on time ? Should there be a reduction in rent or a cascading rent provision linked to occupation of the other units? Will such an arrangement be acceptable to the funders of the scheme in any event ? Should the tenant only be obliged to fit out and take the lease once an agreed number of other pre-lets have been entered into ?
  • What are the time limits for completing the whole of the development and the fit-out by the other occupiers?

Inevitably proper advice needs to be taken on these aspects. 

In approaching such schemes it is not the provisions incorporated in the initial developer documents but rather what is usually missing from them which an operator properly advised ought to consider.

This article was written by Harbans Choban.

For more information please contact Harbans on +44 (0)20 7427 1053 or harbans.choban@crsblaw.com